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In January, bitcoin was trading around $13. By November, it was at $200, and it had soared past $1,200 by Thanksgiving before backing down. Is bitcoin the wave of the future, or nothing more than digital tulips? One look at the chart says the present is fraught with extreme risk that cuts both ways.

While we cannot know if the next stop for bitcoin is $2,000 or $200, one thing for sure is it is a chart that none of us have ever seen live and in person (see Chart 1).

Chart 1

Bitcoin

Without getting into the details, bitcoin is a new currency traded against the dollar, yen, euro and every other currency around the world. It is not minted by any government and by extension it cannot be diluted by central bank money printing or other government policies. Bitcoin fans say that (apparent) invulnerability could help it replace gold as a store of value.

If you recall the initial public offering of Netscape two decades ago, or even of
GoogleGOOG -0.730032788073112%Google Inc. Cl CU.S.: NasdaqUSD548
-4.03-0.730032788073112%
/Date(1427835600087-0500)/
Volume (Delayed 15m)
:
1518528AFTER HOURSUSD548
%
Volume (Delayed 15m)
:
58376
P/E Ratio
27.041297192738327Market Cap
378819564442.62
Dividend Yield
N/ARev. per Employee
1228170More quote details and news »GOOGinYour ValueYour ChangeShort position
(ticker: GOOG) one decade ago, early trading in a true innovation can be quite frenzied. Prices increase at geometric rates. In today's marketplace, bitcoin seems to have taken that dynamic to the limit with a near-vertical ascent and a host of analysts crying "bubble."

On the charts, we do see meteoric ascents from time to time, and usually they do not end well. A good example is
SodastreamSODA 2.323232323232323%SodaStream International Ltd.U.S.: NasdaqUSD20.26
0.462.323232323232323%
/Date(1427835600109-0500)/
Volume (Delayed 15m)
:
341107AFTER HOURSUSD20.0743
-0.185700000000001-0.9165844027640672%
Volume (Delayed 15m)
:
4379
P/E Ratio
34.33898305084746Market Cap
415760367.967225
Dividend Yield
N/ARev. per Employee
198902More quote details and news »SODAinYour ValueYour ChangeShort position
(SODA) in 2011. The young stock rallied from roughly 25 to 80 in just a few months' time and just as quickly was trading back down near 30. I call it "parabolic up, parabolic down," others call it an "Eiffel Tower" pattern.

Briefly last week, the price of bitcoin exceeded the price of an ounce of gold. While it makes for great headlines, the comparison is not any more valid than comparing gold to the level of the Standard & Poor's 500, or apples to wildebeest. None of it makes sense. You cannot hold an ounce of bitcoin on your hand.

But the hoopla over the event did underscore the sentiment now surrounding this market. I am not commenting on the viability, liability, or buyability of a new system of money, but only the technicals surrounding it. Even though the public is largely unaware of this market, those investors involved with it show an extreme level of bullishness. Extreme bullishness creates an environment where any bad news can be devastating to prices.

Gold, as mentioned, has been suffering, and whether bitcoin has played a role is up for debate. The trend has been down for nearly two years and it is hard to make a case from a simple price action perspective that this market is close to turning around for the better (see Chart 2). But in a strange twist, the new love for bitcoin and its spawned additional dislike for gold may be just what will change the metal's fortunes for the better.

Chart 2

Gold

Without inflation, war, a sinking dollar, or intense demand for the commodity – traditional conditions under which precious metals flourish – gold has shed all but its most devoted fans. Sentiment is as dour as ever, so the idea that bitcoin is putting in the final nail in the coffin could create a contrarian's dream setup in the near future.

But sentiment is merely an environment. Only price action can set a buy trigger, and for now, the few remaining gold bugs will have to wait.

Chart 3

Gouda Tulip Bulbs

Perhaps bitcoin, not gold, is indeed the future of money. But given that the bitcoin parabola is similar to that of the Dutch tulip bulb mania in 1637, (See Chart 3) the dangers of buying into a bubble are the same as attempting to sell it short. It could double from here just as easily as it could fall by half. Timing must be perfect with these levels of volatility and risk.

Investors might consider waiting for a significant shakeout in bitcoin before taking the plunge. Or they can follow gold lower as they wait for a spark that triggers a massive short squeeze as bears rush to cover their bets.

On the charts, both markets seem to be at critical levels, where major reversals or major accelerations – up for bitcoin and down for gold – may be in the offing.

Getting Technical Mailbag:Send your questions on technical analysis to us at online.editors@barrons.com. We'll cover as many as we can, but please remember that we cannot give investment advice.

Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.